No Bad Choice

I am already maxing out my 401(k), Roth IRA, and HSA on autopilot. I feel like beyond that, there are a lot of good options, each with their own risk and reward and it’s really difficult to choose between them.

For example, with my RSUs I could:

  1. Pay cash for the taxes and keep all of the shares. (High risk, high reward as this is $30,000 to $80,000 per year of shares in my employer. It also requires me to save up the cash to pay the taxes of up to $10,000 on a vest.)
  2. Sell shares for taxes, keeping about 2/3 of them. (High risk, high reward as this is $20,000 to $55,000 per year of shares in my employer.)
  3. Sell all shares for cash and diversify.

I’ve chosen option 3. It doesn’t seem to be working out that badly so far as I still see the efforts of my employer’s stock doing well with future RSU vests.

With my extra cash flow after maxing out tax-advantaged accounts, I could:

  1. Pay down the mortgage.
  2. Set the money aside in cash.
  3. Invest in index funds in a taxable account.

For the last year, I’ve been doing option 1 exclusively with an occasional dip into option 2. I’m starting to realize that life could change a lot in the next 4 years before my mortgage payoff goal and maybe it would be nice to have some more easily accessible funds. As with my psychological want to have a nice round number in my online savings account ($20,000), I have a feeling that once my mortgage balance reaches some number, I will feel less of a need to pay down the mortgage so aggressively and that’s when I’ll switch to investing in index funds instead or doing a mix. I’m already starting to feel less antsy about the mortgage balance, so I have a feeling that I will hit this number in the next six months or so.

Some numbers at which I think I’ll feel better about the mortgage balance:
a) $228,800: 20% of original loan balance paid down ($14,200 to go – will probably hit June 1st)
b) $214,800: 40% in equity (could hit by end of July)
c) $200,000: a round number (could hit November 1st)
d) $XXX,XXX: my expected gross income for this year including RSUs (could hit by end of November)
e) $179,000: 50% in equity (could hit by end of year, if I make the January 1st payment in December)
f) $150,000: a round number
g) $XXX,XXX: my base salary and what I would probably get somewhere else
h) $100,000: a round number
i) $50,000: a round number
j) $20,000: the balance of my savings account
k) $0: no more mortgage!

My guess is that somewhere between a) and e), I will feel better enough about the mortgage balance that I will start either splitting funds between investments and mortgage or just to investments. My investments have been going up so much lately that that seems like a bit of a scary idea though.

Why do I want to do this? Another 3-4 years is a long time to keep paying down the mortgage aggressively and not build up much of any savings/investments outside of a paid off condo and well-stocked retirement accounts. If I want to go work at a startup and lose my job stability or quit my job and travel the world, I’d like to have some more liquid funds aka a bit of a diversified nest egg rather than the gazelle intensity that I have right now on the mortgage. I can also always cash out the investments and pay off the mortgage, assuming that they haven’t lost value.

Ways I could diversify:

  1. Invest with my monthly savings and pay down the mortgage with the RSUs since those are bonuses. (7 year amortization)
  2. Invest 50% and pay down the mortgage with 50% of my monthly savings and RSU vests. (9 year amortization ignoring RSU vests)
  3. Pay down the mortgage with a specific amount each month to make the amortization over say 10 years (~$2,500 from today) or 15 years (~$1,700 from today) and invest the rest.
  4. Pay down the mortgage with the original payment each month (~$1,200) and invest the rest. (~20 year amortization)

I’m leaning towards diversifying by paying down the mortgage with a specific payment each month and investing the rest once I reach either $200,000 or my expected gross income including RSUs for the year.

Readers, do you find that you get attached to magic/round numbers emotionally when evaluating options? How do you deal with that?

20 thoughts on “No Bad Choice

    • I definitely agree with you, but my concern is around liquidity and diversification before the full payoff. If I have $100,000 left on the mortgage and lose my job, I still have to make the payments. I’m not going to send $0 extra to the mortgage, but I’m trying to find some more balance. What do you do?

      • I think Nicole and Maggie talked about how it is possible to request that your lender recalculate your mortgage payments if you’ve paid ahead on your mortgage. I’m not going to hunt for the link, but that might be a possibility if you paid a large amount ahead on your mortgage and then lost your job.

        • It’s called recasting and I have looked into that. My lender offers that feature. It helps cash flow a bit, but doesn’t help with a need for assets, which is what I want in the meantime.

  1. I feel ya! Good problems to have. :)

    In terms of round numbers, I always feel like I have to write a round number for the mortgage check. So we’ve always pre-paid at least a little, just to round up.

    • Agreed! :)

      I would totally do that too out of fear of paying the wrong amount of pennies, except that I don’t write a check for the mortgage – I pay it online. And my lender makes me enter the amount of the extra payment separately, so then neither of the numbers are round!

      It drives me nuts that the mortgage balance always has a different number of pennies each month. I want it to be an even dollar amount, lol.

      • You can write a check in whole numbers or you pay a mortgage so that the balance hits a whole number, but what is the oft chance that one can do both? Sounds very Shelden Cooperesque!

        • Haha, I definitely have some of Sheldon Cooper’s characteristics :) I tried to pay the exact amount to the penny that would result in a specific dollar amount and it didn’t work! I got the numbers wrong and was off by something like $2.69. So annoying!

  2. As we approached a certain amount of savings and mortgage balance I decided to pay off the mortgage in full. So satisfying not being beholden to that debt. Unfortunately, some of that extra money has gone to lifestyle inflation. Regardless and ultimately, no debt = more freedom to do what you want :)

    Also, I thought you had an ARM. That would compel me to pay it off in case of that tiny chance of a interest rate increase.

    In regards to liquidity, I would think a HELOC could come in handy.

    I calculate our net worth with round numbers, don’t like decimal points.

    • I have a feeling that I will pay off the mortgage in full when I have enough liquid assets to cover the balance as well :)

      I do have an ARM, but even with the “small” amount I’ve paid down so far, the payment can’t reset to something I can’t afford. I also don’t necessarily know that I’ll stay in this place for much more than 5 years, which is why I’d like some more liquid assets.

      Hehe, I don’t mind decimal points, but I calculate my net worth to the penny to be precise. (I just don’t want to be quite that precise on the internet, so I round to the nearest $100.)

  3. For some reason I’m addicted to round numbers. The $6 left over in my Paypal account used to annoy the heck out of me. I also had $20,000 exactly in an online saving account until I recently decided that it was too much.
    I like your idea of 50/50 mortgage/investing. I’ve always thought your aggressive pay down of such an non liquid asset was pushing your investment allocation a little too heavily towards RE, but you certainly know what you’re doing. I like having a good chunk of change in taxable investments because it feels super liquid if I ever really needed it.

    • $6? There are 8 cents leftover in my brokerage account where I get my RSUs because I miscalculated how much the balance was when I was transferring money out. Thankfully that won’t be there for much longer ;)

      To be completely honest, I think I’m scared of taxable investing. For some reason, stocks don’t scare me so much in tax-advantaged accounts, but they do in taxable accounts. I need to work on that! And I also wanted to pay the mortgage balance down a bit since $286,000 seemed like a humongous number to me. It’s no longer such a humongous number anymore :)

  4. Definitely no bad choice. I also feel that as we pay our mortgage down I’m less concerned about it, even though the monthly payments are the same.

    We have been paying down the mortgage but still putting money in taxable accounts. The last couple of months we haven’t paid any extra on our mortgage- which is a first since moving in last summer- and it feels strange.

    I don’t get too attached to round numbers when I’m making regular payments but I do always use round numbers when making extra payments.

    • Reading all the comments on this post have made me feel less alone in my craziness, thank you all :) I don’t like that no matter how big of a payment I throw at the mortgage, the payment is still the same. But it still makes me feel less concerned about it.

      I don’t usually use round numbers when making extra payments, which is surprising. It’s because I take the exact amount of the RSU vest and throw it at the mortgage.

      You guys paying down the mortgage AND putting money in taxable accounts definitely was good food for thought for me. Thanks for sharing that!

  5. I wouldn’t pay down your mortgage by making extra payments. Your monthly hit doesn’t change so you don’t get any benefit from that. I’d say put it toward a mortgage pay-down fund that could double as emergency money. Build out your pay-off plan (or later refinance plan) and you’ll be home-free quite quickly.

    • You do get a minimal benefit in paying less interest along the way. How would you invest a mortgage paydown fund? In stock index funds or in cash?

  6. How long is your term? If you’ve got one of those ridic low 20-year mortgage rates, then definitely pay down slowly, deduct mortgage interest (which will have a huge return at your income level, right?), and invest your money. I’m not a big endorser of leverage for market investments BUT when interest is so low, and the deduction so beneficial, it doesn’t seem like that bad an idea.

    • It’s only fixed for 5 years. Deducting mortgage interest saves me about $1,000/year on my taxes right now, which isn’t much when I’m paying $30-40k in federal income taxes alone.

      I think what I’m going to do is make regular payments of $2,000/month (instead of the ~$1,000 required), invest the rest, and do 50/50 mortgage/investing with my bonuses this year. Even with doing that, I’ll still be ahead of the game to pay it off in 5 years as of the end of this year, 1.5 years in. My current calculations suggest having about $10-15k/year leftover to invest, compared to this year’s $35k. That would then give me an almost six figure taxable investing account by the time the mortgage is paid off!

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